Strategy Formulation: Definition, Stages, and Tips for Formulating a Business Strategy

Strategy Formulation – Strategic management has many different meanings defined by experts, for example Pearce and Robinson define strategic management as a set of decisions and actions that lead to the formulation and implementation of plans designed to achieve business goals. Wahyudi believes that strategic management is the art and science of formulating, implementing, and evaluating strategic decisions in every function that helps an organization achieve its future goals.

Strategy is a tool to achieve goals, and in the process of developing strategies that are constantly changing, especially conceptually, Steiner and Miner argue that strategy is a continuous response or adaptation to external opportunities and threats as well as internal strengths and weaknesses. can be influenced by the organization.

In simple terms, a business strategy is a set of well-written plans, actions and objectives that describe how a business operates and competes in the market with the products (goods or services) provided. However, while the theory is easy to understand, developing a solid trading strategy and then implementing it is not an easy task.

A good business strategy must consider several factors including the market, competitors and the business environment, as well as the structure, strengths and weaknesses of the business. A good business strategy must also be flexible enough to deal with change. Therefore, planning and preparing a business strategy requires solid strategic planning and business analysis skills, as well as a good understanding of functions such as marketing, sales, and distribution.

Dikutip oleh David dalam Akdon ia mengemukakan bahwa “strategic management can be defined as the art and science of formulating, implementing and evaluating cross functional decisions that enable organization to achieve its objectives. As this definition implies, strategic management focuses on integrating management, marketing, financial accounting, production/operation research and development, and computer information systems to achieve organizational objectives”.

This definition shows that in strategic management there are three important aspects, namely strategy formulation, strategy implementation, and strategy evaluation. However, this article will discuss more about strategy formulation .

As an entrepreneur, you must be able to formulate a good business strategy so that your business can run smoothly. When running a business, you must be able to understand every detail from the smallest points to the most important points. Therefore, you must be able to build a good trading strategy.

Sinaumed’s friends , in this article, we will study what strategy formulation is, the importance of strategy formulation, and strategy formulation tips. Check out the full review below!

Definition of Strategy Formulation

Business strategy formulation is the process of using available knowledge, data and information to shape the desired business direction and specific steps to achieve its goals. This process is often used to allocate resources, create priority lists, align everyone in the organization, and validate business goals.

The business strategy has been formulated so that it can be understood by many people, from people in power, employees to current business partners. Therefore, an entrepreneur must be able to formulate a business strategy well so that other people can easily understand it.

Successfully formulating a business strategy formulation can provide a business with a clear vision. As a result, companies can reduce the risk of possible miscommunication. Apart from that, it can also help track performance with measurable Key Performance Indicators (KPIs).

Strategy formulation is often referred to as strategic planning, or long-term, the formulation process dealing with the development of missions, goals, formulations, and policies, so that strategy formulation must be achieved by analyzing strategic factors, namely strengths, weaknesses, opportunities and threats in the current situation.

There are fundamental questions in strategy formulation namely, where will a forum be directed, in which direction is the forum engaged at this time, what environmental factors are being faced and what must be done to achieve effective goals in the future, related to these questions it is necessary affirmation according to a formulation because strategy formulation is an important part of the strategic management process holistically, both companies and educational institutions because in strategy formulation it is analyzed how to find ways so that the goals that have been influenced can be realized.

There are various types of strategy formulation that must be formulated both in companies and educational institutions, namely business strategy formulation, corporate or company strategy formulation, and functional strategy formulation. Broadly speaking, business strategy formulation involves decision making at the division level or business unit level. Corporate strategy formulation is formulated at the top management level and made to achieve goals holistically, while functional strategy formulation is needed for each functional area, so that management can formulate strategies effectively. , management must pay attention to various obstacles and also need to choose a set of criteria to evaluate the proposed strategy.

The Importance of Business Strategy Formulation

Through business strategy formulation, companies can evaluate their resources and determine the best way to maximize their return on investment (ROI). The results will become a framework or guideline for all employees working in the company to carry out their roles.

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Apart from that, building a business strategy can also help you understand the strengths and weaknesses of your competitors. Thus, you can use this information to implement a more complete strategy so that the sales results you achieve can outperform your competitors.

Things to Consider in Strategy Formulation

In formulating a strategy, there are several things that must be considered, including:

  1. The vision, mission and goals of the company need to be understood in order to know which direction the company is headed and how to go in that direction.
  1. The second thing that must be understood concerns the company’s current position. The company’s position can be in the form of controlling market share, profit/loss position of the company, internal conditions such as competence of people in the company, etc. This interpretation is closely related to point one, point two is used as a guide or starting point, while point number one is about direction/purpose.
  1. From the combination of the two, a gap or gap will be determined between the current state and the desired state, and the gap will be closed. Ability to identify environmental factors (internal and external) currently faced by the company. By identifying these factors, it will be easier to understand success or failure in achieving goals.
  1. Look for actionable alternatives to achieve organizational goals more effectively in the future. The best solutions can also demonstrate the ever-growing or honing capabilities of people in the organization or company, or they can also represent forever innovation on their part. to anticipate the change, even though this may not be directly proven as a causal relationship.

How to Formulate a Business Strategy

In general, the formulation of a business strategy can be carried out in five stages. Here are five ways to formulate a business strategy that you should know about.

1. Set Business Goals

Strategy is the method used to achieve organizational goals. Therefore, the main key in building a business strategy is prioritizing business goals. Furthermore, strategic decisions can only be made after determining organizational objectives.

2. Evaluate the Business Environment

The next step in formulating a business strategy is assessing the general economic and industry environment in which your business operates. It is very important to have an inventory, both qualitatively and quantitatively, of the types of business products available.

The main purpose of this assessment is to ensure that all factors that influence the success of the company can be found and to identify the strengths and weaknesses of competitors. In this way, you can avoid possible threats and reduce the risk of loss.

3. Define a Strategic Mission

Business people certainly have the mindset to continue to grow and progress, while at the same time wanting to achieve predetermined business goals. This strategic mission can help provide a clear picture of how these business goals will be achieved.

Strategic missions can outline more detailed business goals and how to achieve those business goals. Going forward, this strategic mission will become an accurate and clear guideline for the company and employees in carrying out all tasks and work related to business goals.

4. Performance Analysis

Performance analysis is important to do to find gaps that occur between the performance that has been achieved, the performance that is currently being achieved, and the possibility of performance occurring in the future. This process can help track business performance through Key Indicator Performance (KPI), whether the business operates according to standards or not.

5. Determining the Strategy to be Used

There are various types of trading strategies that can be used. In order for your business to run more smoothly, in the process of developing a business strategy, you should choose the type of strategy that best suits your business. If you choose the wrong strategy, a lot of resources will be wasted.

Building a business strategy is something every entrepreneur should know. However, apart from a business strategy, an entrepreneur must also be able to formulate a marketing strategy. One of the most effective types of marketing today is digital marketing.

Strategy Formulation Stages

Strategy formulation is the process of synthesizing steps for the future of the company, in order to formulate the company’s vision and mission, determine strategic goals, and design strategies to achieve these goals, to create the best value from consumers. The strategy that has been determined is in line with the company’s goals to bring the company’s position to the best position.
Below is an explanation and description of the steps in the formulation of the Rothwell strategy:

Langkah 1: Establishment of Vision, Mission, and Goals

This step includes a general statement of the organization’s mission, goals, and objectives. The formulation of vision, mission and goals is the main responsibility of central management. This formula is influenced by the value given by the leader. The vision, mission and goals of the organization must be clear, concise and represent the basic goals of the organization and what it wants to achieve.

Langkah 2: Identifying Past and Present Strategies

Before deciding whether a strategy is needed, a manager must define it based on past and current strategies. Was the previous strategy developed correctly? If not, this can be analyzed and determined whether the previous strategy is still applicable or needs to be improved. By looking at the previous strategy, it can be seen how the organization’s activities were in the past and its implementation.

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Langkah 3: Diagnosing Past and Present Performance

This step is necessary to evaluate how the previous strategy was performing and to determine what changes are needed so that the organization’s report deserves further investigation. The diagnosis can be made of the following factors:

  • organizational Efficiency,
  • Organizational processes, and
  • organizational performance.

Organizational performance evaluation usually includes some type of financial analysis and diagnostics. One of the leaders must have a clear picture of the state of the organization in detail.

The next step is to identify long-term, medium-term and short-term strategies that are included in the goals and mission of the organization. Remember that these goals cannot be determined without considering internal and external conditions. Setting medium and long term goals as well as analysis of internal and external conditions influence each other.

Langkah 4: Setting Objectives

Goals are statements about what the organization aims for. These goals provide direction and purpose for the organization and its members. Some questions about objectives are required by managers.

Long Term Goals

In general, discuss the organization’s future plans for the next few years. Long term goals must support and not conflict with the organization’s mission. While these goals differ slightly from an organization’s mission, they still need to be linked.
For example, the mission of a fast food company is to quickly serve and deliver hot food to customers in several neighborhoods of a city. One of the long term goals is a plan to increase sales more specifically in the next 4 years. While these goals differ from the company mission, they still support the mission.

Short Term Goals

Is a derivative of long-term goals that support the functioning of organizational systems. Such an assessment creates a prioritized list of long-term goals. Short term goals can be set to help achieve long term goals.

Short term goals should also be clear, concise and measurable whenever possible. Affected parties must clearly understand what is expected. Often, multiple objectives must be used to reflect the desired performance of a particular organizational unit or person.

From a high-level perspective, goals should cover all of the major areas of the organization. The problem with the main goal is often achieved at the expense of other desired goals. For example, if the only goal is production, quality may not be considered in the pursuit of maximum output. Goals in different domains can serve as parameters for other goals. This Goal should be relatively consistent with other Goals.

Step 5: SWOT Analysis and Strategy Formulation

SWOT stands for Strengths , Weaknesses , Opportunities and Threats . This approach seeks to balance the internal strengths and weaknesses of the organization with the opportunities and threats from the organization’s external environment.

  • Strength (strength) is a condition where the company is able to carry out all its functions very well (above the industry average).
  • Weaknesses are conditions in which a business entity cannot carry out its functions properly due to inadequate facilities and infrastructure.
  • Opportunities are profitable business potentials that can be realized by a business without being controlled by competitors and without the influence of any party .
  • Threats are business situations caused by competitors’ activities, if not controlled, the business will face difficulties in the future.

SWOT analysis includes an analysis of opportunities and threats from the external environment as well as an analysis of the strengths and weaknesses of the internal environment. External environment analysis can be carried out by various methods of forecasting and scientific management. The key to successful environmental analysis for strategy formulation lies in the progress of management to detect changes in the external environment and their impacts. Environmental analysis also enables an organization to predict and influence activities in its work environment, in particular providing strategic predictions in response to different environments.

This internal analysis aims to identify strategic strengths and weaknesses that are important for the formulation of organizational strategy. Through understanding the strengths and weaknesses of competitors, the formulation of organizational strategy will be more accurate. Through the application of SWOT (analysis of the internal and external environment) it is hoped that the organization will be able to implement strategic policies that are appropriate to the problems and effective management within the organization.

SWOT analysis helps managers to read important and relevant facts in internal and external analysis. Based on this review, the primary and secondary strategies facing the organization can be identified. The manager then formulates a suitable strategy in making decisions for an organization, neutralizes organizational weaknesses and always takes into account the threats it will face.

Langkah 6: Develop and Evaluate Alternative Strategies and Select Strategy

Strategic decision making is a key element of decision making in strategy formulation. Based on this analysis, management’s willingness to formulate a strategy will provide a competitive advantage for the organization. That is, management seeks to position the organization for an advantage over its competitors, which requires a careful assessment of the competitive forces governing the rules of competition in the industry in which the organization operates.

There are three important ways for management to gain competitive advantage, namely:

  • management fee,
  • Differentiation and
  • Focus on narrow market segments.

Successful managers will choose the strategy that gives their organization the most favorable competitive advantage, and then they will seek to maintain that advantage over time.